Though often discussed in terms of the benefits to exporters, BPOs are a strong option for corporates in many situations. Polytrade’s experience using BPOs as an importer stands as proof of this – demonstrating the instrument’s value as a means of differentiating from competitors, streamlining settlement processes, and optimising costs. Stefanie Stanzel, vice-president commercial of Polytrade Global GmbH, explains how and why Polytrade came to use BPOs, and how they plan to use them in the future.

The bank payment obligation (BPO) – an innovative, digitally-compatible instrument for settling trades through bank mediation – is most widely discussed for its benefits to exporters. Often overlooked, however, is the fact that it also represents a compelling option for importers. This is something we at Polytrade have experienced first-hand, having successfully used BPOs to settle certain import transactions since 2014.

Moving from letters of credit (LCs), we have been able to drastically improve the speed, efficiency and cost-effectiveness of our settlement processes, while making ourselves more attractive to potential trading partners looking for innovative means of transacting.

Of course, realising these benefits requires a reliable and expert partner to help smooth both the implementation and transaction processes. And, for us, UniCredit has been more than up to the task – with its team providing strong support at every stage.


Making the decision

In fact, it was UniCredit who approached us to propose using BPOs, having discussed the matter with our supplier’s bank in Thailand. The suggestion offered us the chance to position ourselves as one of the first importers in Germany, and indeed in Europe, to offer such an innovative option as part of our settlement portfolio.

What’s more, BPOs are an interesting and promising new instrument, and we were keen to explore its potential. Such a proposal, therefore, gave us the opportunity to immerse ourselves in the process – understanding exactly how it works, how it could benefit us and our customers, and whether it would be a worthwhile and profitable initiative.

The answer to the latter is a resounding “yes”. Before the transition, we were settling trades with our supplier using LCs. BPOs offered us the chance to streamline our settlement processes – not least because they are faster than LCs, with documents exchanged directly through digital channels, rather than being repeatedly filtered through our respective banks.

And thanks to the absence of any fee associated with verifying BPO documents, the process is less costly than with an LC – a benefit that should not be underestimated. The commodities industry is a small-margin business, so the cost saving from switching to BPOs translates into a substantial competitive advantage.

Furthermore, the efficiency of BPOs is compounded by their digital compatibility. UniCredit, for instance, uses an innovative digital platform – accessible via an online tool – that enables transactions to be carried out and monitored electronically through every stage of the process.


Smooth execution

The simplicity of the BPO’s processes, combined with UniCredit’s highly professional support, made for a smooth implementation process. This was clearly an area of expertise for UniCredit, but what stood out was the team’s ability to co-operate quickly and efficiently with us and our supplier’s bank.

Certainly, one challenge that arose during the process involved communicating with our supplier. The difficulty is that BPOs require close collaboration between sales, finance and procurement departments – a tricky task given the scale of our operations, the size of our supplier and the complexities of co-ordinating the various elements of a supply chain. Fortunately, UniCredit were excellent partners and their support was invaluable in helping us overcome this challenge and communicate swiftly and effectively across companies and departments.

What is more, before the online tool was operational, UniCredit went out of its way to ensure the process remained efficient – providing us with an up-to-date physical copy of the BPO, which proved to be another critical tool in helping us co-ordinate effectively with our supplier.


Moving forward with the BPO

For us, BPOs are an instrumental part of our current and future plans for settling import trades. We have been highly impressed with the improvements in terms of speed and efficiency, as well as our ability to offer partners innovative payment options.

Indeed, we would be equally interested in expanding our BPO operations to include exports as well – although, in this respect, we have yet to find a match. In fact, compatibility remains a substantial barrier to future BPO deals, as many counterparties are unable to support the instrument because their bank – or even their country – is not yet BPO-ready. The work that UniCredit is doing to bring the BPO to new markets is therefore a vital service for helping corporates realise the instrument’s full potential.
Of course, BPOs are not designed to completely replace traditional methods and, consequently, there are cases where they are not the best option. For instance, we have partners with whom it remains preferable to settle via LCs, and others where open account trading, supported by trade credit insurance, is more economical. Given this, finding a BPO match is not always possible.

That said, the scope for BPOs to improve trade finance processes is enormous. Many counterparties can benefit from their streamlined and efficient digital processes. Certainly, we at Polytrade have been highly impressed by our experience, and – when the time is right – will happily expand our BPO portfolio to include both imports and exports. Given this, UniCredit’s work in expanding the coverage and reach of BPOs is to be applauded.